Indonesia’s parliament approved a revised 2013 budget including a compensation program for poor people, giving the government room to raise fuel prices to reduce trade and current-account deficits.
The budget was passed during a plenary session in parliament in Jakarta yesterday, with 338 members in favor and 181 against it, said Speaker of the House Marzuki Alie. The government plans to lift the price of subsidized fuel this week after passing the compensation plan, Planning Minister Armida Alisjahbana told reporters in Jakarta before the vote.
Raising fuel prices would take some of the pressure off the rupiah and improve investor confidence, after a record current account gap in 2012 made the rupiah the worst performer in Asia after the Japanese yen among 11 most-traded currencies tracked by Bloomberg over the past year. The rupiah fell 0.1 percent to 9,888 per dollar in Jakarta yesterday before the vote.
“Raising the fuel price from the macro point of view is a step that has to be done for macro stability,” Finance Minister Chatib Basri told reporters at parliament.
President Susilo Bambang Yudhoyono had put off raising fuel prices since protests derailed a planned increase last year, in a country where riots spurred by soaring living costs helped oust dictator Suharto in 1998. Yudhoyono made the fuel compensation program a precondition to raising fuel prices, to reduce the potential public backlash.
About 3,000 protesters staged a rally outside parliament during the vote, said Rikwanto, a Jakarta police spokesman who uses only one name. Students burned tires and braced against water cannons as the protests continued into the evening, according to footage from MetroTV.
The rupiah’s one-month non-deliverable forwards touched 10,412 on June 11, the weakest level since August 2009, according to data compiled by Bloomberg.
Standard & Poor’s cut its rating outlook on Indonesia’s debt to stable from positive last month, saying a stalling of reform momentum and a weaker external profile had reduced the chance of an upgrade over the next 12 months.
The trade deficit could widen to as much as $3 billion this year if the government fails to raise subsidized-fuel prices, Trade Minister Gita Wirjawan said on June 4.
Consumer prices are forecast by economists to accelerate on the Yudhoyono administration plans to raise fuel prices. Inflation may peak at about 8 percent within three months of a price increase, Chua Hak Bin of Bank of America Corp. estimated. Bank Indonesia made a surprise rate rise on June 13 to head off the risk of inflationary pressures.
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